EPC Contract of solar power plant are “Works contract services” and attracts 18% GST: AAR

Categories: Advance Ruling
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Fact: M/s RFE Solar Private Limited is engaged in business of developing power projects in India. It undertakes development, design, engineering, supply, installation, testing and commissioning to establish solar power plant at various states in India.  It will undertake itself in executing ‘Engineering Procurement and Commissioning “EPC” contacts for Solar Power Generation System commonly known as “Solar Power Plants”. The Applicant undertakes following activities for effecting supply of Solar Power Plants —

  1. Consulting in Procurement of Land on which Solar Power Generation System shall be installed.
  2. Procurement and Supply of components of Solar Power Generation System (these materials are mostly imported by assessee on the basis of order received from its clients)
  3. Installation of Components which have been supplied by the assessee.
  4. The said installation can be roof mounted or land mounted depending upon the location as pre-decided between the parties for establishing Solar Power Generating System
  5. Engaging in Construction of support civil Inverter Room.
  6. Handing over of Solar Power Plant.

Issue Involved: Whether EPC contract for Solar Power Plant shall be classifiable as supply of goods or supply of services under the provisions of the CGST Act, 2017 and Rajasthan SGST Act, 2017 & under which HSN/SAC tax shall be levied?

Held: The Hon’ble AAR of Rajasthan vide Advance Ruling No. RAJ/AAR/2018-19/08 dated July 01, 2018 stated that the scope of work in respect of “Turnkey EPC Contract” includes civil works, procurement of goods and erection and commissioning. Accordingly, “Turnkey EPC Contract” are not getting covered under supply of ‘Solar Power Generating System’ under Entry 234 of Schedule I of the Notification No. 1/2017 – Integrated Tax (Rate), Entry 234 of Schedule I of the Notification no. 1/2017 – Central Tax (Rate) both dated June 28, 2017 and Entry 234 of Schedule I of the Notification no 1/2017 – State Tax (Rate) dated June 29, 2017. EPC Contract for Solar Power plant comes under the purview of Works Contract defined under Section 2(119) of the CGST Act, 2017 as under:

“works contract” means a contract for building, construction, fabrication, completion, erection, installation fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.”

Thus, the EPC contract for Solar Power Plant falls under the ambit “Works Contract Services” (SAC 9954) of Notification no. 11/2017 Central Tax (Rate) dated June 28, 2017 and attracts 18% rate of tax under IGST Act, or 9% each under the CGST and SGST Acts, aggregating to 18%.

Citation: [2018] 97 taxmann.com 198 (AAR- RAJASTHAN)